TMI Blog2011 (1) TMI 1208X X X X Extracts X X X X X X X X Extracts X X X X ..... g/transmitting the same on its Television Channels from Singapore. The assessee is a tax resident of Singapore in terms of Article 4 of the Double Taxation Avoidance Agreement between India and Singapore (DTAA or the Treaty). During assessment year 2002-03, the assessee derived advertisement revenues from Indian and International advertisers. The assessee filed its return of income for the captioned year on October 31, 2002 declaring taxable income at Nil. 4. The assessee made the following submissions before the AO: ( a )The company is incorporated and resident of Singapore for tax purposes. ( b )The assessee is in the business of creating and operating cable and satellite television channels, marketing and distribution of television channels and related activities. ( c )During the year, the assessee has operated two channels - SET and SET MAX. It was also engaged in the marketing of airtime of the following Television channels: AXN and CNBC India. ( d )For the purpose of marketing the channels, the assessee has appointed SET India as a non exclusive advertising and sales agent for canvassing airtime for SET, SET MAX, AXN and CNBC India channels. The assessee has als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal. 7. The Revenue s appeal is on the following grounds : (1)On the facts and in the circumstances of case and in law, the CIT(A) erred in holding that since the agent i.e. SET India P. Ltd. has a good profitability record, it can be said that the assessee has remunerated the agent on an arm s length basis and based on the provision of Article 7(2), the OCED commentary on the subject and the other contentions made, no further profits should be taxed in India in respect of ad revenues from its own channel; ignoring the facts: ( i )that the assessee has dependent agency PE in India in the form of SET India (P.) Ltd.; ( ii )that the assessee s income is assessable as business income within the meaning of Article 7 of the Indo-Singapore DTAA. (2)On the facts and in the circumstances of case and in law, the CIT(A) erred in holding that ad revenues pertaining to AXN channel are not taxable in India on the ground that assessee has paid an arm s length service fee for the services rendered by its agent i.e. SET India (P.) Ltd. and based on the provisions of section 9(1)( i ) of the Act, Article 7(1) of DTAA and the ratio of Circular No. 23 dated 23/7/69, no income in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al of the Circular and in view of the basis for withdrawal of the Circular, the order of the CIT(Appeals) has to be set side and that of the AO be upheld. 9. On ground No.2, the learned DR submitted similar arguments, as that submitted for ground No.1 apply, the only difference being that ad revenues pertained to AXN channel. 10. On ground No.3, the learned DR submitted that subscription revenues was taxable u/s 9 of the Income-tax Act as the assessee, had a business connection in India. He referred to the order of the AO on this issue and supported the same. 11. The learned Senior Counsel, Mr. Percy Pardiwala, on the other hand, submitted that the issue whether the assessee has a dependant agent in India or not, need not be necessarily be adjudicated upon by the Tribunal in this case, for the reason that SET India has been remunerated by the assessee at a price which is more than the arm s length price determined by the TPO and under those circumstances, there would be no profit whatsoever attributable to the PE in the case of the assessee. He brought to the notice of the Bench the order of the TPO wherein the TPO has held that the arm s length compensation payable for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed, the Bench dismissed the same by observing that the order of the Tribunal merged with the order of the Bombay High Court dated 22nd August, 2008 and under those circumstances, the question of rectification does not arise. He further submitted that the CIT(Appeals) decided the issue in favour of the assessee during the assessment year 2000-01 and the Department did not file an appeal. For the assessment year 2001-02, the AO himself has not made this addition, though now the same is reopened for making this addition. He submitted that the first appellate authority has given a categorical finding that this is not a royalty but is only the business income and pointed out that the Revenue has not challenged this finding of the CIT(Appeals). Under these circumstances, he submits that no income can be taxed in the hands of the assessee on the issue of subscription revenue. 15. Coming to ground No.4, the learned counsel submitted that the issue is covered in his favour by the decision of the jurisdictional High court in the assessee s own case in Income Tax Appeal No. 814 of 2009 for the assessment year 1999-2000 judgment dated 17th June, 2009. 16. Rival contentions heard. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n India, I do not consider it necessary to adjudicate upon whether the Appellant has a PE in India. I may also add that since the A.O. has held (based on Transfer Pricing Officer s order) that more than arm s length remuneration is paid to SET India, there is no case for any taxation in the hands of the Appellant, since even where an arm s length remuneration is paid, the tax liability of the principal non-resident gets extinguished in India, in terms of Article 7(2) of the Treaty referred above. 4.10. Accordingly, I hold that the income earned by the Appellant by way of ad revenues from its own channels (including the income by way of ad revenues enhanced by the A.O. pursuant to Transfer Pricing Officer s order under section 92CA(3) of the I.T. Act is not taxable in India. This Ground is accordingly held in favour of the Appellant." 18. This Bench of the Tribunal in the assessee s own case Dy. DIT (International Taxation) v. Set Satellite (Singapore) Pte. Ltd. [2007] 106 ITD 175 (Mum.) for the assessment year 1999-2000 held that as per Article 7 of DTAA, what is to be taxed, is income of the foreign enterprise attributable to the PE in the host country. Agency remunerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly or independently with the enterprise of which it is a PE (3.) In the determination of the profits of a PE, they shall be allowed as deductions expenses which are incurred for the purposes of the business of the PE including executive and general administrative expenses so incurred, whether in the State in which the PE is situated or elsewhere. However, no such deduction shall be allowed in respect of amounts, if any, paid (otherwise than towards reimbursement of actual expenses) by the PE to the head office of the enterprise or any of its other offices, by way of royalties, fees or other similar payments in return for the use of patents or other rights, or by way of commission, for specific services performed or for management, or, except in the case of a banking enterprise, by way of interest on moneys lent to the PE. Likewise, no account shall be taken, in the determination of the profits of a PE, for amounts charged (otherwise than towards reimbursement of actual expenses), by the PE to the head office of the enterprise or any o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting of profits outside India. Under art. 7(2) not all profits of MSCo would be taxable in India but only those which have economic nexus with PE in India. A foreign enterprise is liable to be taxed in India on so much of its business profit as is attributable to the PE in India. The quantum of taxable income is to be determined in accordance with the provisions of IT Act. All provisions of IT Act are applicable, including provisions relating to depreciation, investment losses, deductible expenses, carry forward and set off losses etc. However, deviations are made by DTAA in cases of royalty, interest etc. Such deviations are also made under the IT Act (for example : ss. 44BB, 44BBA etc.). Under the impugned ruling delivered by the AAR, remuneration to MSAS was justified by a transfer pricing analysis and, therefore, no further income could be attributed to the PE (MSAS). In other words, the said ruling equates an arm s length analysis (ALA) with attribution of profits. It holds that once a transfer pricing analysis is undertaken; there is no further need to attribute profits to a PE. The impugned ruling is correct in principle insofar as an associated enterprise, that also constit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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